ExxonMobil told state regulators again last week not to expect an increase in oil production on the North Slope, arguing it is a "reasonable approach" to conclude that a long-term decline is continuing.
In the weeks and months preceding the vote on whether to repeal the MAPA (SB 21) oil tax cut, supporters of the law claimed repeatedly that the decline in oil production had ended, arguing that oil production in fiscal year 2013 was nearly the same as in fiscal year 2014, the start of a new trend toward higher production.
Critics said that since MAPA had only been in effect for six months, its was unrealistic to draw conclusions on the future course of oil production.
In testimony presented to the Regulatory Commission of Alaska, the oil companies have in effect said the same thing -- arguing the decline rate over the past five years should be extended to 2014.
Tesoro challenged that conclusion in a protest filed with the RCA last month.
"The only basis for this assumption is a claimed reliance on historical rates of decline," Tesoro said, adding that the statistical evidence shows a need for an investigation of the numbers.
ExxonMobil said Friday its prediction of a 5.3 percent decline in production this calendar year compared to last year is "appropriate given the continuing decline" in the amount of oil carried by the pipeline in recent years.
Oil flow and costs
The amount of oil shipped in the pipeline is important in calculating transportation expenses recovered by the companies. The lower the projected flow rate, the higher the amount per barrel the oil companies will charge themselves for transportation.
Spreading fixed expenses over a smaller number of barrels leads to higher costs. Conversely, the more oil the pipeline carries, the lower the transportation cost per barrel. As a company that pays to ship oil on the pipeline and does not own a part of the pipeline, Tesoro has a clear incentive to seek the lowest transportation charge possible.
The oil companies filed revised transportation rates this summer, based on 2013 as a test year. Tesoro challenged several aspects of the rates, including the prediction that oil flow would drop at the same rate it has in recent years.
Tesoro said pipeline oil flow dropped by 2.44 percent from 2012 to 2013 and that the state Department of Revenue predicted in the spring that fiscal year 2014 would bring a decline of less than 2 percent compared to 2013.
Tesoro said Aug. 25 that state predictions may justify a higher throughput estimate for 2014, but ExxonMobil said that claim is "erroneous." ExxonMobil said using the decline rate of the last five years is the correct approach.
"This is a reasonable approach based on actual experience and Tesoro does not show otherwise," ExxonMobil said last week.
Based on the first eight months of the calendar year, production is down by more than 4 percent in calendar year 2014, compared to the same period in 2013.
In July, ExxonMobil witness Jeffrey Ray told the RCA that the average decline from recent years is expected to continue.
"I have no reason to believe that this trend will reverse itself in the foreseeable future," Ray testified.
Ray, who is based in Houston, serves on the oil company committee that provides "strategic direction to Alyeska with respect to its operation of TAPS." His job entails planning, analysis and management support for the pipeline.
A witness for ConocoPhillips made similar statements to the RCA.
"I have no reason to believe that the annual decline in TAPS (Trans-Alaska Pipeline System) volumes will reverse in 2014 or the foreseeable future," ConocoPhillips commercial supervisor Joseph Falcone said Aug. 6.
The pipeline averaged 536,000 barrels per day in 2013, a total of 195.7 million barrels for the year. Ray told the state agency to expect a 5.3 percent decline from 2013, the test year.
"In my opinion, the historical test-year volume level exceeds the representative level of future throughput by at least 5.3 percent, an amount which is consistent with the historical annual percentage decline," he said in a document filed July 31.
In August, a statement by ConocoPhillips said its RCA filing predicting a decline reflected the position of the pipeline branch of the company, not its exploration and production branches.
Andrea Urbanek said the ConocoPhillips pipeline branch uses state predictions and "historical decline analysis" to predict how much oil will be shipped in the line.
"The purpose of the forecast, which is based on known and measurable inputs, is to create just and reasonable shipping rates for companies that ship oil on TAPS. To the extent that future DOR data and historical decline analysis supports a different decline trend, CPTAI (ConocoPhillips Transportation Alaska Inc.) will, when appropriate, modify its tariff," Urbanek said.